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The surprising news that Minnesota is projected to have an $876 million budget surplus in the current budget cycle gives Gov. Mark Dayton and state lawmakers some breathing room heading into the 2012 legislative session.

Minnesota finance officials delivered the positive fiscal outlook just five months after Dayton and GOP legislative leaders forced a 20-day state government shutdown after failing to reach agreement on erasing a $5 billion budget deficit. The two sides deadlocked over Dayton's call for an income tax increase on the state's top earners and a GOP push for deeper spending cuts.

It appears those arguments will continue into 2012 - an election year when every member of the Legislature is on the ballot.

Republicans praised the news of a surplus and said it reinforced their decision to oppose Dayton's income tax increase.

"I think the one thing that has been made apparent here, I hope, is that the Dayton tax plan is dead," said GOP Senate Majority Leader Amy Koch of Buffalo.

Neither Koch nor GOP House Speaker Kurt Zellers of Maple Grove would commit to spending the surplus. Instead, they suggested the best use of the funds is to replenish the state's nearly empty budget reserves.

Koch and Zellers both say the surplus won't change their focus for the 2012 session. They say they'll continue to push ways to cut government regulation and increase efficiency. Zellers said such efforts could reduce the deficit projected in the next two year budget cycle.

"The forecasted deficit is still $1.3 billion," Zellers said. "If you eliminate that then our private sector job growth will be taking off."

Zellers also said Republican efforts to limit government spending work. However, most of the of the savings in state spending are a result of a slower rate of demand for state subsidized health insurance — something Dayton and the Legislature have little control over.

Dayton said he wants to wait until the next budget forecast is released in February before deciding how he'll move forward with a budget plan. He said he won't push again for an income tax increase if the state continues to run a surplus.

However, Dayton didn't back off from his position that Minnesota's top earners should pay higher taxes. He said the current budget plan, which he signed into law, forced local officials to increase property taxes.

Dayton said Republicans in the Legislature preferred to protect millionaires at "the expense of everyone else."

"They're still in a state of denial about the impact that their eliminating of the homestead credit and their cutting in local government aid have had on property taxes," he said. "Those are real dollars that people pay for taxes. They should go and look in the mirror if they want to deal with tax increases."

Dayton suggested Republicans would have to defend those tax increases in the 2012 election.

House Minority Leader Paul Thissen, DFL-Minneapolis, said everyone is relieved that there is a surplus in the current budget cycle. But he said the steps taken to obtain that surplus have hurt the state's bottom line over the long-term.

Thissen said the $1.3 billion projected budget deficit in the next budget cycle doesn't include $1.4 billion in payment delays to K-12 schools. He also said the state will spend the next 20 years paying off a one-time $757 million tobacco bond sale with money from the general budget fund.

Lawmakers preferred to downplay any impact the surplus will have on proposals for a new Minnesota Vikings stadium. Koch and Thissen characterized the stadium as a different issue than the state budget. Dayton, however, said the surplus gives him and lawmakers more time to pass a stadium bill.